Earnings call transcript: Modiv Inc Q4 2024 beats EPS forecast, stock dips

Modiv Inc (MDV) reported its fourth-quarter 2024 earnings, exceeding Wall Street expectations with an EPS of $0.07 against a forecast of $0.03. Despite this positive surprise, the company’s stock price fell by 4.02% in pre-market trading, closing at $14.92, down from the previous day’s close of $15.55. Revenue for the quarter reached $11.73 million, slightly above the forecast of $11.55 million. According to InvestingPro data, Modiv maintains an impressive gross profit margin of 92.76% and received a "GOOD" overall financial health rating, suggesting strong operational efficiency despite market fluctuations.

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Key Takeaways

• Modiv surpassed EPS expectations with a $0.07 result versus a $0.03 forecast.
• Revenue slightly exceeded projections at $11.73 million.
• Despite the earnings beat, the stock price declined by 4.02%.
• The company is focusing on strategic asset acquisitions and development opportunities.
• Modiv maintains a strong dividend yield of 7.5%.

Company Performance

Modiv Inc demonstrated resilience in the fourth quarter of 2024 by exceeding earnings expectations. The company’s strategic focus on reducing property expenses and operational costs contributed to improved financial performance. Despite a decrease in revenue due to property sales, Modiv managed to increase its Adjusted Funds from Operations (AFFO) by optimizing expenses.

Financial Highlights

• Revenue: $11.73 million, slightly above the $11.55 million forecast.
• EPS: $0.07, significantly higher than the $0.03 forecast.
• Full Year 2024 Rental Income: $46.5 million.
• AFFO per Diluted Share: $1.34.
• Total (EPA:TTEF) Cash and Cash Equivalents: $11.5 million.
• Total Debt Outstanding: $280 million.

Earnings vs. Forecast

Modiv’s actual EPS of $0.07 surpassed the forecast of $0.03 by 133%, marking a significant earnings beat. This performance contrasts with previous quarters where earnings were more aligned with expectations, highlighting the company’s effective cost management strategies.

Market Reaction

Despite the earnings beat, Modiv’s stock declined by 4.02% in pre-market trading. The stock’s movement might reflect broader market volatility or investor concerns about the company’s future guidance. The current stock price is closer to its 52-week low of $13.69 than its high of $18.11, indicating potential market apprehension.

Outlook & Guidance

Looking forward, Modiv is exploring development opportunities, including a potential 60,000-100,000 square foot facility. The company remains committed to its strategy of acquiring institutional-quality assets in the $10-25 million range. Modiv’s forward guidance suggests a cautious approach, with EPS and revenue forecasts for FY 2025 slightly below 2024 levels.

Executive Commentary

CEO Aaron Halfacre emphasized a strategic focus on disciplined growth, stating, "Protecting it is not the same necessarily as always growing it for the sake of growth." He reassured investors of the company’s solid dividend and long-term commitment from key tenants like Northrop Grumman (NYSE:NOC).

Risks and Challenges

• Economic Volatility: The broader economic landscape remains unpredictable, potentially impacting tenant demand.
• Interest Rate Exposure: Fixed interest rate swaps at 4.27% could affect financial flexibility.
• Market Competition: The selective approach to acquisitions may limit growth opportunities.
• Property Sales: Potential delays in asset sales, such as the planned Costco (NASDAQ:COST) transaction, could affect cash flow.

Q&A

During the earnings call, analysts queried the timeline for the Costco asset sale, set for an August 15 closure. Questions also focused on tenant lease renewals, with Fujifilm exercising its lease option and Northrop Grumman showing signs of long-term commitment. The potential sale of the Calera property within 6-9 months was also discussed, reflecting Modiv’s ongoing asset recycling strategy.

Full transcript - Modiv Inc (MDV) Q4 2024:

Conference Operator, Conference Call Moderator: Please note this conference is being recorded. I would now like to turn the conference over to your host, John Rainey, Chief Operating Officer and General Counsel. Please go ahead, sir.

John Rainey, Chief Operating Officer and General Counsel, Motive Industrial: Thank you, Rob, and thank you, everyone, for joining us for Motive Industrial’s fourth quarter and full year twenty twenty four earnings call. We issued our earnings release before market opened this morning and it’s available on our website at motive.com. I’m here today with Aaron Halfacre, Chief Executive Officer and Ray Pacini, Chief Financial Officer. On today’s call, management will provide prepared remarks and then we’ll open up the call for your questions. Before we begin, I would like to remind you that today’s comments will include forward looking statements under the federal securities laws.

Forward looking statements are identified by words such as will, be, intend, believe, expect, anticipate or other comparable words and phrases. Statements that are not historical facts such as statements about our expected acquisitions or dispositions and business plans are also forward looking statements. Our actual financial condition and results of operations may vary materially from those contemplated by such forward looking statements. Discussion of the factors that could cause our results to differ materially from these forward looking statements are contained in our SEC filings, including our reports on Form 10 K and Form 10 Q. With that said, I would like to turn the call over to Aaron.

Aaron, please go ahead.

Aaron Halfacre, Chief Executive Officer, Motive Industrial: Thanks, John. Hello, everyone. Welcome. What a great day to come out with earnings the same day we got tariffs going. We timed these things perfectly for your entertainment.

I am going to have some comments this time, but let’s first jump to Ray and then I’ll make comments after that and then we’ll do Q and A. Ray?

Ray Pacini, Chief Financial Officer, Motive Industrial: Thank you, Aaron.

Ray Pacini, Chief Financial Officer, Motive Industrial: I’ll begin with an overview of our fourth quarter operating results. Revenue for the fourth quarter was $11,700,000 Fourth quarter adjusted funds from operations or AFFO was $4,100,000 on a per share basis. AFFO was $0.37 per diluted share for this quarter, which is $0.08 above the average of the analyst estimates compared with $0.4 per diluted share in the prior year period. I’ll now discuss our full year operating results. Rental income for the full year was $46,500,000 AFFO for the full year was $14,990,000 and AFFO per fully diluted share was 1.34 for 2024.

The $400,000 revenue decrease from property sold in the first quarter of twenty twenty four was offset by a corresponding decrease in straight line rents. The increase in AFFO reflects a full year of decreased property expenses following the disposition of 14 properties in late twenty twenty three, many of which were not triple net leases and a $300,000 decrease in G and A, primarily due to reduced employee compensation. Now turning to our portfolio, annualized base rent from our 43 properties totals 39,600,000 as of 12/31/2024, with 39 industrial properties representing 78% of ABR and non core properties representing 22% of ABR. Our portfolio has an attractive weighted average lease term of thirteen point eight years and approximately thirty two percent of our tenants or their parent companies have an investment grade rating from a recognized credit rating agency of BBB minus or better. Now turning to our balance sheet and liquidity.

As of 12/31/2024, total cash and cash equivalents were $11,500,000 and we had $280,000,000 of debt outstanding, which consists of $31,000,000 of mortgages on two properties and $250,000,000 of outstanding borrowings on our term loan. Based on interest rate swap agreements we entered into in January 2025, ’1 hundred percent of our indebtedness as of 12/31/2024, of a fixed interest rate with a weighted average interest rate of 4.27% based on our leverage ratio of 47.6% at year end. We also have a $30,000,000 of availability on our revolver, which we reduced from $150,000,000 in December 2024 in order to save $300,000 per year in unused fees. As previously announced, our Board of Directors declared a cash dividend for common shareholders of approximately $0.0975 per share for the month of January, February and March 2025, representing an annualized dividend rate of $1.17 per share of common stock. This represents a yield of 7.5% based on the 15.55 closing price of our common stock as of 03/03/2025.

I’ll now turn the call back over to Aaron.

Aaron Halfacre, Chief Executive Officer, Motive Industrial: Thanks, Ray. So wanted to go over a couple different areas that didn’t feel like writing them out extensively in the press release, but wanted to talk about them on the call. And it may either prompt following questions or preempt some preliminary questions. I think first, let’s look at transactions, right? So we have I think you clearly understand now that we don’t feel compelled to do things just for the sake of doing them.

We look at a lot of things, but we’ve been picking our spots. I’d say, when we released third quarter earnings in November till now, we’ve had it’s been quite an opaque economic landscape with a lot of vacillation between fear and euphoria. And so just didn’t really see anything usually how it works in the property markets, the available inventory dies down sort of early December and it starts picking back up sort of mid later January. And so we saw some, we kicked the tires on some, but just didn’t see anything that said, oh, geez, let’s go extend ourselves or let’s do something just for the sake of doing it. So clearly, we’ve shown patience.

Obviously, we’re now probably a year away from the sort of $200,000,000 of acquisitions we had done in aggregate in sort of a twelve month timeframe. So we’ve kind of slowed it down. But that doesn’t mean we’re not looking, it doesn’t mean we won’t do transactions. I just it’s a real lesson in patience. And I think my point about maybe REITs on growth stocks is the fact that, hey, at the end of the day, we have to grow really prudently and each decision we make on the balance sheet, we’re living with for a long period of time.

And we’ve all seen others out there who make decisions that are a little bit more near term and they will either issue out some costly preferred and public or private. They will unwind some of their portfolio to redeploy it into other areas or they’ll issue a large amount of equity that just doesn’t really pencil. I just I don’t fault them, they all have their own reasons for doing things like that. But for us, I just think any of those decisions would be a far greater drag on us than it would the benefit from buying a property. So we’re just being thoughtful about that.

But as we look for the course of the year, it does I do not intend to stare at my navel. And as most of you should know, we don’t. It just means we’re looking we’re diligently working to try to get something up that makes sense. So for a couple of reasons, so pipeline wise, you notice that we reduced the revolver and that’s a material savings. We had contemplated doing it last year, but last year or early part of the year at least we were contemplating we thought about it, but we weren’t sure and we wanted to hold off because there was a lot of battleship conversations and would we need the revolver for those.

And then I think as we work through more of those battleship conversations, which I’ll touch on in a second, we realized that you probably wouldn’t need the revolver. In fact, there would be other sources of debt that would probably be more favorable. And so the revolver was a nice to have, but you wouldn’t put buy your car with a credit card, right? And I actually look at the revolver kind of like a credit card. And for me, for instance, personally, I put everything on my credit card for the month and I pay it off at the end of the month.

So I always view it as it’s going to be extinguished right away. And at $150,000,000 revolver, I mean, that’s 100% of our market cap. And so how am I supposed to pay it off if I have it dangling in front of me? So we downsized it to what I thought was a reasonable amount, dollars 30,000,000, that’s 20% of if we ever had to pull off and we found something that was super compelling, it’s like, oh, geez, it’s a nine cap and our revolver paper is only $6,500,000 and we’re going to get the spread and then I got a backfill back somehow. I didn’t want it to be too large of a backfill that caused us to choke on the chicken bone.

So we reduced the revolver that saved money, but that revolver is I think used for us to think about timing purposes, right? So if it’s a mismatch in timing, we could use that. We don’t want to use the revolver for big acquisitions. Like I said, big acquisitions, there are other we’ve now identified plenty of other sources of financing that we could use that would be less costly. So it does not foretell that we’re not able to grow or that we won’t grow.

It just means we won’t grow with that mechanism. But we’ll use that mechanism for its intended purposes, which is a lot of times we see revolvers that are $1,000,000,000 or $1,500,000,000 which is great, but I don’t know if they’re always used. And we were paying, what, dollars 300,000 a year for something that wasn’t being used. And so we rightsized that, but and I rightsized it very specifically. We have probably comfortably $80,000,000 worth of properties that are in the portfolio right now that we have the ability to recycle and we would pick up at least 125 basis points on that $80,000,000 in AFFO.

And that would be standstill and that wouldn’t require any change of things. And we don’t have that model that wasn’t in the $137,000,000 I don’t know that we’ll do that. We’ve had several unsolicited offers on some of these properties. One of the reasons why I haven’t sold now is I just think the better clarity we have in the rate environment, the better pricing is across the board. And that might mean that pricing is tighter on the purchases, but the pricing is also tighter on yourselves.

And so our view, if any one of those properties that we wanted to recycle and we had a mismatch because we wanted to do a ten thirty one that the revolver would be useful. So we do think that we can use a revolver for acquisitions, but they would be ones that we would self fund or could immediately fund and so that we would not put ourselves in any sort of leverage situation. I’ve been pretty adamant that I don’t want leverage to really go up unless it’s something that was super significant and positive. And I had a path of line of sight to retire it. As it relates to the Battleship conversations, they’re not over.

I’m not going to get play by plays like I did. I think we were down the line on that one that didn’t get done. That portfolio is still out there. We have had other balance sheet conversations. I think collectively, us and the other parties all realized that we were in a super volatile market.

Everyone had to roll into swaps or caps at the end of the year. They had to reset sort of their interest expenses. So I think those portfolios are still there. I still think there’s conversations to be had. So those are certainly a potentiality.

I think we’re receptive to them. I think someone asked a question to me offline, it seems pretty straightforward, why wouldn’t you get one done? The sponsor would just need to take a mark to market hit and then they get your equity and then have huge upside. And I agree with that on paper, but you got to get a sponsor to take a mark to market hit. And so I think that’s it’s a little bit of a time.

We’re obviously if we were issuing out equity, we’d be doing so below NAV. So we would be taking out a hit. So no one’s going to take our equity at $24 And but at the same time, they have to. So look, I think those could happen potentially or one of them could happen, but I’m not cooking that number anywhere. It’s not anywhere in our horizon other than it’s a potentiality.

I’d say that we want to acquire. We just want to be really balanced because at some point here, I don’t know when and your guys’ guess is as good as mine, we’re going to move away from this risk off trade in this asset class. And it’s been sort of bottle toil on, off, on, off, on, on given the day or given the hour. And at some point, we should we’ll start to see activity. We’re starting to see little tea leaves.

You saw the BSR Blackstone (NYSE:BX) thing. We’ve seen Ackland with Hughes, you’re starting to see a little rumblings of activity. Obviously, NAREIT wants to profess that IPOs are going to pick back up even though I think Line choked it on that one a little bit. So look, I think once we see better activity and we’re better poised and pricings are more normalized, I want to be in a position to act. I don’t want to act before that because think about it, what if we had pulled the trigger on something a year ago?

Or you would just would again absolutely drag to the mud and beat about, right? And the market has been and all of you have been very stern with your capital as it relates to other REITs who don’t make good decisions. You punish them, right? We’re still suffering from the same quagmire that we’ve suffered from for three years is that we don’t trade a lot, we don’t have a lot of following, we have not done a big issuance ever. And we’re okay with that.

Our dividend is solid. Our investors who have been with us for a long time are there. We are adding new and new investors as time goes on. The volume is up probably. I mean, if you go back like, I mean, at one point in our history, public history, we were like $9 and change, right?

And we were trading maybe 2,000 or 3,000 shares a day. And now we’re consistently higher volumes, much more stable price, greater following, certainly a lot of potentiality in the name. And so we’re comfortable with that and we recognize that by not making bad decisions, it preserves us to be able to make a good decision when the market environment is conducive to that. And so that’s how we’re thinking about that. So that may be a little underwhelming for the machine in terms of we don’t have X volume for the quarter, but I wanted to share that logic that that doesn’t mean we’re not doing anything.

It doesn’t mean we’re just going to sort of float around the ocean without a rudder or a motor. We have intent. That intent includes patience though. I think one of the things I think it’s poignant to talk about today given the fact that we now officially have tariffs in place. And I guess it’s I don’t fully understand it, but I guess I kind of understand it.

There’s been a lot of concern that, oh, tariffs are bad for someone like us. And so we’ve actually gone out and talked to our tenants. We get quarterly financials from them. So we use that opportunity to talk to CFOs. And we’ve asked them how they think about tariffs and how the tariff rhetoric.

Granted, up until now, we don’t really have tariffs, but all we’ve had is the threat of tariffs. And I would say that there was two instances where they said some of their metals input costs would be higher because of tariffs, but they would simply pass those on. And so they weren’t concerned. They did note that some of their input costs as it relates to the metals that they’re using would be higher, but they would have no problem passing those on in their contracts to their clients. And so there was I wasn’t concerned.

That was the only thing we found that anyone said negatively about tariffs. Some people have said and like give you an example, some of our things are very domestic manufacturing productions, right? So guardrails and some precast concrete. They’re sort of they had no opinion, like it doesn’t affect them, right? They sell domestically, they source domestically, no problems there.

There’s others who said that they’ve actually found quite a bit of pickup and inquiry. So they have a lot they found particularly some of them that manufacture some things that could be manufactured, example, in Canada or Mexico. Some of those jobs have now the people have been coming to them saying we want to source jobs from you domestically. And so and there’s a degree of optimism in that, that they think order pickups would come. Most of people view that they will that will be either a slight benefit or agnostic to the tariffs.

So we don’t see any spear loading as it relates to tariffs. I don’t think we’re going to catch a massive wind from one of these things. I mean, I think that would take time and I think you’d have to have real trade shutdown, which I don’t expect to happen at all. I think this is a lot of political positioning and alignment and I don’t think this has anything to do with actual trade systems grinding to complete holds. But our tenant base does not seem to be bothered at all by tariffs and in fact, expects sort of at least an interim uplift in order demand.

We have do you have two tenants who have come to us and ask us to expand their footprints, so physically add on to their sites. And so we’re talking to them about capping that out and growing providing dollars to them in a way that increase our rent at a favorable cap rate and allows them to consolidate. So we think that’s a positive. It’s a but we’re basically like a real hard rock. The rock doesn’t move very fast, but it’s really a rock hard and solid and it’s a good base and good foundation.

So we feel good about that. We don’t have much concerns about that, if any. The swap, let’s talk a little bit about the swap. So three years ago when we put the swaps in place, we elected to take this ability to do an option that could put it back to us. That put option saved us over 50 basis points in rate.

So if you look back, our sort of our run rate was sort of 4.52. It would have been well over 5% on a locked basis. So that would have been roughly $1250000.00.1300000.0 dollars each year of added interest expense over the last three years. We saved that. It was with options you’re obviously going to take you’ve got a delta to play with.

And I don’t think anyone underwrote in early twenty twenty two where rates would be. And so as we rolled into third and fourth quarter last year, we actually it was August when the Fed cut and rates got really low, there was a really good probability that one of our swaps was not going to get put back to us. And so we had to wait. And we so we had sort of had to wait and we had established a budget. That budget was the 4.2% actually it was slightly more than that we had budgeted.

And that was for just flowing the swaps into flat, sort of the same sort of four point five point three blended. And we sort of monitor on a daily basis. I want to thank our banks who meticulously provided us daily quotes on these swaps. That was tedious. We monitor, we monitored.

Rates really, really ran up. The ten year was going crazy. So far it was going crazy. And so there was a monetary sort of momentary dip in the rates. We elected to use our budget that by doing so allowed us to pay down a little bit to 4.25.

And so I think in that regard, we benefited from it, but we had kind of underwritten this all away. We only did a one year. We could have done a two year, but our view was the time we were doing this at the end of the year, January, that there was going to be more to shake out. Clearly, the ten years receded quite a bit since then, so that’s a good sign. A lot more ground to cover before year end.

So we’ll evaluate fresh as it comes to next year. But our view was, didn’t want to float it, wanted to hedge it. We told you prior that we would. We had a little bit of our budget allowed for it and so we took the benefit. So I think that sort of shared.

I I think that decision along with the revolver was us just being really tight about the near term wins and volatility in the market and just being smart about our balance sheet. As you saw, we did issue equity in the fourth quarter on the ATM. It doesn’t sound like much compared to some of our peers at 200 and I think 287,000 shares. That was $4,600,000 at twenty sixteen-twenty sixteen. That’s 3% of our market cap.

So under the radar completely accretively at prices that we can comfortably the yield on that equity from a common is far below the yield that we could buy a property at. So we knew we could do that. And so we grew the market cap by 3% in a quarter with no one really even knowing the difference. And so that’s something that we’re proud of. We think that little tiny actions we’re making like last year when we bought the OP units back at $14.8 that we’d issued at $25 we’re doing little transactions like that, that again aren’t headline driving, aren’t big, but each dollar that we’re accruing and accreting on that is money that’s going into our investors’ pockets.

So I think discipline wise, we’re excited about where we’re at. I think there’s going to be some opportunities here. It feels I don’t know when, but it feels like there’s going to be some good action in the REITland. I hope it’s in this year, maybe it rolls into ’26. But the status quo, I don’t see for the industry.

I think we’re going to see a lot of change and we’re ready for it and receptive to it. So with that, operator, why don’t we open up for Q and A?

Conference Operator, Conference Call Moderator: Thank you. Our first question comes from Rob Stevenson with Janney Montgomery Scott. Please proceed with your question.

Ray Pacini, Chief Financial Officer, Motive Industrial: Good morning. Aaron, any updates on the timing of the sale of the Costco asset and the solar turbine split

Aaron Halfacre, Chief Executive Officer, Motive Industrial: and sale at this point? Yes. So Costco, we expect it to close on its original thing, which I want to say is correct me if I’m wrong, right, July. They do have three options. And the three options, the first option, they get, I think it’s split where half if they pay the extension option, half of it goes towards their purchase price, the other half we keep.

The other two options, we get to keep fully. We’ve had conversations with them a couple of weeks ago in fact. Look, everything looks like a go. The only reason they might delay a little bit would be just because of logistics with the city, but everything looks to be fine. In the scenario where they do extend, so just to be clarify, they are $1,700,000 hard already, so they can’t get that back.

And if they do hit their extensions, that’s $650,000 additional in our pocket. So in some ways, we’d be fine if they extended, but I don’t think they will. As it relates to solar and WSP split, we’re going through that with the city. That’s been a long process. I think we’re getting near and near that end.

There is a potential, we don’t know for sure, but solar said they might want to have a little bit longer on the lease to clean things out. So they might add three or four months to that lease just to kick it out a little bit longer for them to do what they need to do and their move out. But we’ve had several excellent unsolicited offers on that property, but we’re waiting to get it split and we think there’s going to be more value extraction from that because the solar property would be an owner user most likely, flex space and then the woods, the WSP property, which already has already has an in place lease that we recently renewed. So we’re moving forward with that. I’d like to see that happens in six months, but I don’t know how to handicap municipalities.

They’re just a different beast.

Ray Pacini, Chief Financial Officer, Motive Industrial: Okay. And then what about the The scheduled

Ray Pacini, Chief Financial Officer, Motive Industrial: closing date is August 15 for Costco.

Ray Pacini, Chief Financial Officer, Motive Industrial: Okay. And then what about the OES purchase option exercise? Is that increasingly likely given the commentary in the supplemental? How are you guys feeling about that? And what would be the timing on that likely at this point?

Aaron Halfacre, Chief Executive Officer, Motive Industrial: So they’ve informed us that they started their process to get an appraiser, and so which is the first step. We have not gotten an update as to that, but they would obtain a third party appraiser service. They would get an appraisal. They would evaluate that appraisal relative to the contractual prices set forth. If they’re in parameters and they decide they want to purchase it, then they put it forward into their budget.

It gets and then that budget would get approved for the following year. So this has always been contemplated as a long tail process. We knew they couldn’t start the process in earnest last year until after their budget cycle had started. I think some of the wild cards that could go both ways and this is again trying to read tea leaves is obviously the State of California has a fairly large budget deficit for so does that weigh on their decision to purchase or the timing of when it? At the flip side, I think we just saw Newsom mandate that government workers go back to their office, which is an interesting signal for that state.

But the other thing is, this is the Office of Emergency Services. This is the department that received both state and federal funding for natural disasters, which we just got one done in the Palisades and there’s quite a few of these at hand. So this is if there are budget constraints in the broader California budget, this is one that probably is still well funded because of the severity of natural disasters and the impact that they have on lives. So we feel comfortable, but we are going to be flying blind because it is a government process and they have their procedures that they can follow. So my guess is we probably won’t know anything if we do know anything at all until summer.

And then it would and even if that was the case, then it would probably be they probably they always signal that they were going to purchase it. It would be within that first four year window. And that’s how the right is to do so. But right now, nothing to suggest that they’re not doing it. We’re waiting to hear back from them on their selecting their appraisal, which I think is a good sign because if they didn’t want to do it, they wouldn’t engage in that process.

Ray Pacini, Chief Financial Officer, Motive Industrial: Okay, that’s helpful. And then in the K, you guys indicated that Fujifilm exercise their lease option there. Is that just a standard increase or is there anything abnormal about that option exercise that would impact earnings more than or less than what we would think?

Aaron Halfacre, Chief Executive Officer, Motive Industrial: So they have two seven year options. It is a we have to establish a mutually or we have to agree upon a rent. That rent is established at 95% of fair market value. So that’s the mechanism in that place. So it’s not a contractually predefined dollar amount.

So the process will start to obviously both sides have different opinions of what fair market value is and we have to sort of come to a compromise and there’s a mechanism to do that. And then once we do that will be the rent going forward for the next seven year option. They’re a fantastic tenant. They have been in that building for a while. They have put a lot of their own capital into that.

And we’d love nothing more to see them stay longer. We would have loved to have a Okay.

Ray Pacini, Chief Financial Officer, Motive Industrial: Okay. So that will be a flat lease, not no bumps once you establish a price off that?

Aaron Halfacre, Chief Executive Officer, Motive Industrial: No, there’s a mechanism for bumps as well.

Ray Pacini, Chief Financial Officer, Motive Industrial: Okay. And then with that Fujifilm lease done, what are recent conversations with Northrop Grumman, who I think is the other significant exploration you have over the next couple of years that’s not in the disposition pile?

Aaron Halfacre, Chief Executive Officer, Motive Industrial: Yes. So I mean, too soon to have conversations about renewals or things like that. They’re coming up. So that said, I mean, you kind of look at what has been done. There was just we just there was just $1,000,000 put in to replace the generator into that property.

They also went to us and told us that they every time they make a change, they have to like interior change, they have to notify us. They don’t have to get our approval, but they have to notify us. And so they have been expanding and doing more build out. So they do classified primary electronics in there. And so they’ve expanded some of their they’ve retrofitted additional space.

Originally, I think when we bought it, well, we didn’t buy it, the legacy team had bought it, it was largely like an engineering officeHR it was kind of like an office. And they during COVID, they cleared all that out. And then increasingly what they’ve been doing is they’ve been putting lab space in there. So they’ll get a contract, they’ll add 10,000 feet, they’ll retrofit that for a lab, they’ll do more and then more. So they’ve increasingly added more and more lab space into that space.

We’re not even allowed to go in. We don’t know what they’re doing exactly because they don’t you have to have top secret clearance. So but they have put in quite a bit of money in the last twelve months into their property and they recently expanded some more. So those suggest to us that they probably are here to stay. We’re going to have a very open conversation with them as we get closer to that.

That’s probably not going to be until end of year or early next just by the nature of how these work. But other than that, we don’t see candidly, if they left, we wouldn’t be we won’t cry. We’ve had a lot of interest. Believe it or not, someone would like to develop that whole space into apartments. But so we’re okay, but we think they’re staying.

Ray Pacini, Chief Financial Officer, Motive Industrial: Okay. That’s helpful. And then last one for me. Ray, how should we be thinking about G and A in 2025? So you’ve got especially I guess the first place to start is the non cash G and A.

You’ve got these Class X OP units to management. Is that just being ratably amortized there over the next five years? And so what should I be looking for versus the $1,600,000 that you did in non cash or stock compensation expense in 2024 for 2025 given that?

Ray Pacini, Chief Financial Officer, Motive Industrial: Yes, those will be amortized over the service period. So in round numbers, I think it’s around $2,500,000 a year. And then the cash G and A will go down, because I don’t know if you saw it in the 10 ks, but Sandra Suto, our Chief Accounting Officer is going to retire at the end of this month. So she’ll be leaving and then her financial reporting person is also going to be leaving at the end of the month and then we have one other person leaving at the April. So we’re going to reduce the staff size by three, we’ll have nine employees.

So that’ll provide savings in the G and A front as well.

Ray Pacini, Chief Financial Officer, Motive Industrial: Okay. And then I assume that Aaron not getting a salary or bonus will also sort of go to subtract out from the $6,300,000 that you guys had this year?

Ray Pacini, Chief Financial Officer, Motive Industrial: Right.

Ray Pacini, Chief Financial Officer, Motive Industrial: Okay. So non cash goes up $2,500,000 per year to call it in the neighborhood of four ish and then cash goes down?

Ray Pacini, Chief Financial Officer, Motive Industrial: No, you misinterpreted me. $2,500,000 is the absolute number, not the increase.

Ray Pacini, Chief Financial Officer, Motive Industrial: Okay. Okay. So that’s $2,500,000 and then the cash will go down for the departures and for Aaron moving from cash to non cash stock?

Aaron Halfacre, Chief Executive Officer, Motive Industrial: Correct. Yes.

Ray Pacini, Chief Financial Officer, Motive Industrial: Okay. And then the last one on that, are you guys still running sort of 30% of the year in the first quarter? Is that still the way that all of it sort of flushes out with this stuff in terms of the accruals and everything that it all is going to still happen in the first quarter and so big number and then subsequently smaller numbers throughout the year?

Ray Pacini, Chief Financial Officer, Motive Industrial: Yes. I mean, the first quarter includes the bulk of the audit expense

Conference Operator, Conference Call Moderator: and then it includes

Ray Pacini, Chief Financial Officer, Motive Industrial: a lot of tax consulting because we have to issue K-one this month and get ready to substantially file the tax return. So yes, it will be front loaded again. I’m not sure if it’s exactly 30%, but it will include those additional professional fees, which are higher than the rest of the year.

Ray Pacini, Chief Financial Officer, Motive Industrial: Okay. Thanks guys. Appreciate the time this morning.

Aaron Halfacre, Chief Executive Officer, Motive Industrial: Thanks.

Conference Operator, Conference Call Moderator: Our next question comes from Gaurav Mehta with Alliance Global Partners (NYSE:GLP). Please proceed with your question.

Gaurav Mehta, Analyst, Alliance Global Partners: Thank you. Good morning. I wanted to

Analyst, Analyst, Alliance Global Partners: ask you on the $6,000,000 acquisition that I think you have under contract. I think in the press release you talked about identifying the development opportunity in the land parcels. Is that something you guys plan to do yourself or is that something for the future?

Aaron Halfacre, Chief Executive Officer, Motive Industrial: Yes. So just to give clarity, so obviously we had alluded to this UPREIT transaction prior quarter. We had signed an agreement. We were going through due diligence. When we got there, we were like, well, there’s a very large attached parcel to it.

We wanted a little bit more time to explore. We actually had a conversation with the tenant. The tenant has the existing tenant on the built portion has expressed an interest to take down a we could build approximately 60,000 to 100,000 square foot facility next door. And they expressed an interest in having some of that space so that they could consolidate their operations in one location because they have their leasing somewhere else. And we’ve so we spent time talking to them.

We spent time talking to some local industrial brokers in the market. We also spent some time looking at sort of developers. So we definitely think there’s an opportunity there. It doesn’t mean we’re going to pull it today. But how we would do that?

We would we have experience in here. We would typically work with a turnkey builder that would work with us all the way through. So we’re not the contractor on this obviously and have it developed concurrent with leasing activity. So we think that’s something that we’ll do. When we do it, we’re going to have to huddle.

We’re having an off-site strategic team meeting here in April. We’re going to discuss that, some other ones. And it also highlights, we actually have four of those three others of those types of possibilities because a lot of the properties we’ve acquired have large land footprints. And we for instance, we have an asset in the Carolinas, so we’ve been approached for a carve out to build an industrial facility. So we’re looking at those.

Those are ways to obviously generate AFFO growth without necessarily simply buying something. And we’ll look at those strategically over the course of this year for sure and decide which ones we want to pull the trigger on.

Analyst, Analyst, Alliance Global Partners: Okay, great. Second question, I don’t know, I wanted to ask you around your comments on the acquisition

Gaurav Mehta, Analyst, Alliance Global Partners: market. I guess,

Analyst, Analyst, Alliance Global Partners: what are some other indicators you’re looking at to get more active in the acquisition market? Is it like you need like better cap rates or more product flow or maybe better cost of capital to do accretive acquisitions?

Aaron Halfacre, Chief Executive Officer, Motive Industrial: Yes. I think we’ve honed and re honed our strategy as time goes on. I think now, whereas before we bought some smaller assets, $5,000,000, 6 million dollars assets, I think now you have to be really sterling white for me to get smaller. Not because I don’t have a problem with smaller assets, just because I think just generally speaking, they don’t appear as institutional. So we’re sort of looking more for that $10,000,000 to, I would say, dollars 30,000,000 size.

When you get above $30,000,000 if it’s a single asset, it feels just way too big. Candidly, 30 is probably too big unless it’s something beneficial. If it’s a portfolio of assets, like our Lindsay (NYSE:LNN) has like multiple assets and so they all break up. But it’s sort of that 10 to 25, I guess, would probably be the sweet spot. So that’s been a filter that we kind of looked at.

And right now in this environment, looking at some of the deals that are coming out, they’re PE led. And you’re like, okay, why are you selling this in such a shitty rate environment? And the answer probably is they don’t care. They just want the money and they’re going to do something else with it. And that’s not necessarily a good reason for a landlord to buy, right?

And so I think we’ve been that’s motivation is a big part of it. It’s like, okay, why are you selling at probably one of the darkest hours? You have the absolute most clarity and you’re wanting to try you’re just little you just bought this company. And I get it, it’s a cash out strategy, but it’s a very it could be a very expensive one. And so we think we’re about, hey, that might be on that might be it might price talk of 7.5 percent or 7.25%, but that might really be a 9% cap and you won’t find out until afterwards.

And so we want to be careful of that because look, you have to be cognizant that in the manufacturing space, you have the binary risk is much larger than it is in say a Walgreens, right? The re letting is going to be a lot harder, so you have to be more scrutiny. So I think some of the candidly, the inventory we’ve seen just hasn’t been super compelling that says, yes, screw it, we’re going to go get it. If there’s one that looks good and we want to buy, we’re willing to buy, it’s just that there’s no sense in just buying something that doesn’t seem really compelling because I’m not buying this look, my net worth is tied to this, all our investors’ net worth is tied to this. There’s a lot of people who aren’t institutional, who aren’t owner name, who don’t pay attention to what you publish and they don’t look at the stock market, but they care very deeply about the sanctity of what they own.

And that’s how we got to be mindful, right? That this is real people’s money and that we have to protect it. And protecting it is not the same necessarily as always growing it for the sake of growth that we do want to grow it, we do want to make it more valuable, but we have to protect the house. And sometimes the best way to do that is not put new shit in the house that isn’t good and or is it really compelling. And so look, cost of capital certainly matters.

I think right now it’s been a thin pipeline of activity. I think we’ll see it more robust and there’ll be a lot more choice because the really smart folks are going to probably who want to sell their properties are going to wait a little bit, if I were them, just like we’re waiting a little bit. So that’s kind of how we think about it.

Analyst, Analyst, Alliance Global Partners: All right. Thanks for that color. That’s all I had.

Aaron Halfacre, Chief Executive Officer, Motive Industrial: Thank you.

Gaurav Mehta, Analyst, Alliance Global Partners: Our next

Conference Operator, Conference Call Moderator: question comes from Steve Chick with Sebas Capital Sebas Garden Capital. Please proceed with your question.

Gaurav Mehta, Analyst, Alliance Global Partners: Hey, thanks. Aaron, we appreciate the patience and I’m glad you discussed the Uprix transaction head on in the press release. That was helpful. I just had some questions, numbers questions, maybe for Ray. The ABR for at the end of the year had a was a little lower than last quarter despite the same number of properties.

I’m assuming there’s kind of some assumptions in there for maybe Costco and Endicott, but can you just kind of reconcile that? That would be helpful. And then maybe actually what you’re anticipating for within your AFFO guidance for 2025 for ABR.

Ray Pacini, Chief Financial Officer, Motive Industrial: So the decrease reflects the fact that Costco, their lease expires at the July and Solar’s lease also expires at the July. So those are the things that are driving the decrease. They’re partially offset by ongoing rent bumps, but that’s basically the driver. What was the other part of your question?

Aaron Halfacre, Chief Executive Officer, Motive Industrial: I don’t know that we’ve given ABR for guidance.

Ray Pacini, Chief Financial Officer, Motive Industrial: Yes. We had

Gaurav Mehta, Analyst, Alliance Global Partners: a Well, just I guess is Endicott in there as well, the small sale?

Ray Pacini, Chief Financial Officer, Motive Industrial: Yes, it was. But it really is a small number.

Gaurav Mehta, Analyst, Alliance Global Partners: Yes. Okay. Right. And can you remind me, is this kind of steady state ABR number, it doesn’t include kind of rent bumps or it’s not forward looking, is it an ABR kind of

Ray Pacini, Chief Financial Officer, Motive Industrial: It’s the next twelve months. So it’s the rent we expect to receive from January 1 to December 31 of this year.

Aaron Halfacre, Chief Executive Officer, Motive Industrial: Okay. Yes. So any bumps that come into play this calendar year are reflective because that what we’re basically taking is a twelve month rent roll based on how we do contractual rent is, right?

Gaurav Mehta, Analyst, Alliance Global Partners: Yes. Okay. All right. That’s helpful. And then in the assets held for sale at year end on the balance sheet, it looks like I think it’s somewhere in like $22,000,000 Is Endicott in there and what is in that number?

Ray Pacini, Chief Financial Officer, Motive Industrial: It’s just Costco. Endicott didn’t have come along until after the year ended the close. The way the GAAP rules work is you have to be committed to a sale as of the balance sheet date to include it in asset held for sale. So we didn’t have discussions with the buyer didn’t come to us until January. So that’s why end of cost is not in that number.

So it’s just Costco.

Gaurav Mehta, Analyst, Alliance Global Partners: Got you. Okay. That’s helpful.

Aaron Halfacre, Chief Executive Officer, Motive Industrial: I would point out that for first quarter in January this year, we did we have taken Calera to market. So that’s out in the process right now. So that will show up for held for sale on first quarter numbers. But it’s early I mean, we just took it to market less than a month ago.

Gaurav Mehta, Analyst, Alliance Global Partners: Got you. Okay. That was actually my follow-up on that. Do you have I I mean, are we able to say with the Cushman valuation that was the appraisal recently done, how did Clara come out within that, I guess, relative to its book value? Can you speak to that?

Aaron Halfacre, Chief Executive Officer, Motive Industrial: No. There was if you’re asking if there was an impairment, there was no related impairment associated with the valuation. So it was the valuation that Cushman did was remains above Bouquet. The marketing process that we’re having is first focused on strategic growers of sort of the same ilk. And then from there, the second rung is sort of marijuana growers, which are legalized in Minnesota.

And then from there, it would be just sort of general industrial use. So we’re running through that process right now. Our broker advises it’s probably a six to nine month sales process. It’s hard right now in the winter, obviously there. So it’s sort of been a little bit of soft marketing.

But I don’t know what the outcome will be on that. What I can tell you is that is whatever dollar value we get out of that, that is dollars that are earning AFFO right now. And so we look forward to getting that redeployed and putting that money to work and we have not made any assumptions in our numbers of that happening, just so

Gaurav Mehta, Analyst, Alliance Global Partners: you know. No, that’s good and fair. Because I think the book value is somewhere in the area $9,000,000 to $10,000,000 So it sounds like you’d be expecting north of that sometime over the next six to nine months assuming the process goes this year?

Aaron Halfacre, Chief Executive Officer, Motive Industrial: I don’t have any expectations right now until the market is weird. We’re going to see what we get and then we’ll go from there. But my only desire is to get the most we can get. But I don’t know. I don’t have an expectation of what we’re going to get.

Gaurav Mehta, Analyst, Alliance Global Partners: Okay. A couple more if I could. On, I wonder if it makes sense with the preferred coming up in a callable in 2026, you don’t want to advertise in advance, I guess, but does it make sense at some point if it’s below par value to pick off some of that in the open market? I saw in with your credit agreement, on the K, it looks like you’ve released some commentary on that. You could do that if it was funded by the common stock.

But I’m just curious if you could speak to that and any future refinancings as you look out into 2026 and 2027?

Aaron Halfacre, Chief Executive Officer, Motive Industrial: So I think in the third quarter commentaries and either on the call or commentary I alluded to, a lot of our thinking is going towards that preferred that becomes callable in September of twenty twenty six and our debt maturing in January 2027. And so we’re very much thinking about decisions today that impact those. And I think in an ideal context, should we have the means, which candidly is going to probably be equity. But if we had the means to retire the preferred, I would. It was good for us.

It served its purpose, but I think it could be priced better if you ever wanted to do one. Like in my ideal context in a world that doesn’t currently exist, I would be like Public Storage (NYSE:PSA) used to be and I would have preferred as my sort of first lien position and I have common and I would not have any other debt. And then that would derisk the nature of this asset class considerably and would make it very much a perpetual income vehicle, but I’m not there. So to even get there though, if we were ever to be there, we would have to retire this preferred. I think you’re right, we wouldn’t want to advertise in advance if we’re going to be taking things out.

We have the flexibility to do so and we’ll see. All right, great. Thanks guys. I appreciate it. Thank you.

Conference Operator, Conference Call Moderator: There are no further questions at this time. I’d like to turn the call back over to management for closing comments.

Aaron Halfacre, Chief Executive Officer, Motive Industrial: All right, everyone. Thanks so much. We’ll talk again soon and we’ll keep our nose to the grindstone and keep working things out. Appreciate your support. Take care.

Conference Operator, Conference Call Moderator: This concludes today’s conference. You may disconnect your lines at this time and we thank you for your participation.

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